Protocol Overview

Lunarys Protocol is a privacy-preserving DEX that uses Fully Homomorphic Encryption to keep all financial data confidential while enabling trustless trading.

The Privacy Problem

Traditional AMMs expose sensitive financial information:

• Public Balances: Anyone can see how much of each token a wallet holds
• Visible Trades: Transaction amounts are visible to all observers
• Pool Transparency: Reserve amounts reveal market conditions and opportunities for MEV extraction

This transparency creates risks for traders:

• Front-running attacks
• Sandwich attacks
• Portfolio analysis and tracking
• Strategic exploitation based on position sizes

The Lunarys Solution

Lunarys uses Fhenix CoFHE to encrypt all sensitive values while maintaining the ability to perform AMM calculations on-chain.

How FHE Works

Fully Homomorphic Encryption allows mathematical operations on encrypted data:

Encrypted(a) + Encrypted(b) = Encrypted(a + b)
Encrypted(a) * Encrypted(b) = Encrypted(a * b)

This means the AMM can:

1. Accept encrypted swap amounts
2. Compute output amounts using encrypted reserves
3. Update reserves without revealing actual values
4. Return encrypted output to the user

Privacy Guarantees

Data	Visibility
Token addresses	Public
Swap direction	Public
Swap amounts	Encrypted
Pool reserves	Encrypted
User balances	Encrypted
LP positions	Encrypted
Fee amounts	Encrypted

AMM Mechanics

Lunarys implements a constant product AMM:

x * y = k

Where:

• x = Reserve of token A (encrypted)
• y = Reserve of token B (encrypted)
• k = Constant product (computed from encrypted values)

Swap Formula

For a swap of token A for token B:

amountOut = reserveB - (k / (reserveA + amountIn))

All arithmetic operations are performed on encrypted values using FHE operations provided by Fhenix.

Fee Structure

• Swap Fee: Configurable (default 0.3%)
• Protocol Fee: Optional cut for protocol treasury (max 1%)
• LP Fee: Remainder goes to liquidity providers

Fees are deducted from the input amount before calculating the swap output.

Token Standard

Lunarys uses FHERC20 tokens, an extension of ERC20 that supports:

• Encrypted balances stored as euint128
• Encrypted transfers between addresses
• Permission system for decryption access
• Wrap/unwrap functionality for converting between plaintext and encrypted balances

Position Tracking

Liquidity positions are represented as NFTs (ERC721) that store:

• Token pair addresses
• Tick range (for future concentrated liquidity)
• Encrypted liquidity amount
• Encrypted token amounts
• Fee growth snapshots for reward calculation

Use Cases

Private Trading

Traders can swap tokens without revealing:

• How much they are trading
• Their total portfolio value
• Their trading patterns

Confidential Market Making

Liquidity providers can:

• Deposit without revealing position size
• Earn fees proportionally (calculated encrypted)
• Withdraw without exposing realized profits

Dark Pool Functionality

The protocol functions as a decentralized dark pool where:

• Order sizes remain hidden
• Price impact is distributed among all LPs
• No single party can observe all trading activity